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Entrepreneurial Development in a Corrupted Environment
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ScienceDirect Procedia Economics and Finance 5 (2013) 73 – 82
International Conference on Applied Economics (ICOAE) 2013
Entrepreneurial development in a corrupted environment Bagautdinova N.G. a*, Goncharova I.V.b, Shurkina E.Y. c, Sarkin A.V.d, Averyanov B.A.e, Svirina A.A.f a Kazan Federal University, [email protected], Kazan, 420008, Russia, Moscow State Humanities University, [email protected], Moscow, 109240, Russia, c Kazan National Research Technical University, [email protected], Kazan, 420011, Russia d Kazan Federal University, [email protected], Kazan, 420008, Russia e Kazan Federal University, [email protected], Kazan, 420008, Russia f Kazan National Research Technical University, [email protected], Kazan, 420011, Russia b
Abstract The paper deals with essentials of corruptive environment creation and gives the historical background of corruption existence which can help the researcher to come to deeper understanding of its results. After that business corruption dimensions are searched and main trends of different types of the firms’ development in those dimensions are investigated. The paper also reveals the results of survey dedicated to estimation of corruptive environments’ entrepreneurial intentions which allows understanding the main trends of business model creation in this type of hostile external surroundings. Finally typical specific features of entrepreneurial development in corruptive environment are revealed. Those include both individual features of entrepreneurs developing their business in corruptive environment as well as main features of business models they tend to implement in their entrepreneurial practices. © Authors. Published by Elsevier B.V. B.V. ©2013 2013The The Authors. Published by Elsevier Selection peer-review under responsibility of the Organising Committee of ICOAE 2013 Selectionand/or and/or peer-review under responsibility of the Organising Committee of ICOAE 2013.
Key words: qualitative and quantitative analysis both from contemporary and historical perspective dealing with different elements of entrepreneurial development in corrupted environment
1. Introduction Entrepreneurial development is considered to be one of the most important tools for lessening the
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* Corresponding author. +7 (903) 344-8389 E-mail address: [email protected].
2212-5671 © 2013 The Authors. Published by Elsevier B.V. Selection and/or peer-review under responsibility of the Organising Committee of ICOAE 2013 doi:10.1016/S2212-5671(13)00012-9
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impact of global economic crisis due to the fact the creation of new ventures becomes the catalyst for increase of business activity and therefore post-crisis recovery. On the other hand within the periods of stable world economy development entrepreneurial development becomes a necessary element of it as well. This means that governments are interested in entrepreneurial development stimulation and therefore ought to provide efficient policies on the issue. However it is essential to investigate the trend of entrepreneurial development in case external environment is providing difficulties for business development both for start-ups and existing companies. A specific case of hostile external entrepreneurial environment is the situation of business development in corrupted environment which usually means high extra burden on business structures and entrepreneurs of both formal and informal character. Some research on the issue had been done within case studies (see for example Kuemmerle, Ellis and Coughlin, 2000). At the same time in order to have a clear picture of different issues of entrepreneurial development one needs to research specific features and entrepreneurial activity trends in corrupted and therefore hostile external environment which is the issue of this paper. 2. Entrepreneurial activity and corruption: historical perspective. One of the major factors which lead to country’s economic growth is the level of institution development which depends on efficiency and quality of government regulation. Analysis of entrepreneurial development practice shows that entrepreneurs usually appear when the quality of state regulation is equal to authorities it has. This last issue is quite essential for entrepreneurs since in case government is overexploiting its power entrepreneurs are usually moving out of the country – and this is perfectly true for the states with high corruption level (which is usually the consequence of over exercising of state power). In this case corruption can be considered special non-transparent tax imposed on business. The problem of handling corruption is not a new one. Exploring historical perspective one can notice there is enough experience on this issue and reveal certain correlations between the level of corruption and entrepreneurial activity of those periods. Before we start the said investigations we are to mention that high level of corruption does not necessarily mean there will be low entrepreneurial activity; to certain extend corruption can even be a catalyst for entrepreneurial development processes – before it exceeds certain level. First of all it seems logical to mention the history of studied issue. Corruption as a crime existed already in ancient world – the punishment which can occur if corruption is revealed are mentioned in two oldest sets of laws: Hammurapi Codex (Babylon, 2200 BC) and Narmaba Edict (Egypt, 1200 BC). Plato and Aristotle in Ancient Greece paid a lot of attention to negative influence corruption has on economic, political and spiritual life of the society (Akimova, 2008). Some researches even mention that corruption was one of the main reasons for Roman Empire downfall (Kurakin, 2002). Historical analysis of corruption as an institution shows that it had always been a dynamic institution which became legal every once in a while. An example of legalized corruption is Byzantine institute of socalled “feeding”: the situation when local state representatives of the Emperor where appointed were appointed but did not receive any salary and were supposed to be “fed” by local inhabitants. Later this practice was prohibited and “feeding” transformed into illegal payments to which law enforcement institutions did not really pay any attention (Demidova, 1987). At the times of “feeding” entrepreneurial activity in Byzantine Empire was highly polarized depending mainly on the pressure of “feeding” burden and related quality of state regulation. As we’ve mentioned above, in some cases corrupted officials were interested in the rise of entrepreneurial activity and in that case were quite efficient in stimulating it. It is also worth mentioning that even when state representatives became paid government officials their salary was a few times lower than “gifts” they where getting for helping visitors out with their problems (Kurakin, 2002). An interesting situation can be found in medieval Russia (which is a highly corrupted country till today with deep historical roots of the issue). In this country decrease of budget income resulted in fact that some of state representatives (low level ones mainly) where left without salary though stayed government officials and
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this practice became quite widespread. Thus, in 20s of XVII century only one official of a hundred was paid that way, while 50 years later every 4th government official was unpaid. This situation again resulted in allowing such state employees to receive “income” for performing their government duties which in fact meant corruption legalization (Kurakin, 2002). Entrepreneurial activity in the country at the time is decreasing due both to higher legal and illegal taxes imposed on business which any way was not wide spread at the time in feudal Russia. At this time Europe comes to the New Age and rise of bourgeoisie. At this point of European development the problem of over exploitation of government power became a highly actual one (which was of course due to total commercialization of lifestyle). It is fascinating that though corruption is considered by the authors of New Age to have negative influence on societal and economic development, they did agree that government officials should become corrupted due to the fact a person should be an egoist. For example, Francis Bacon was considering the desire to exploit official’s position a normal one: “There is no one who tends to do evil in the name of evil…people do it to get some income, pleasure or achieve certain status etc. So should I be surprised that a person loves himself more than me?” (Bacon, 1977). Bacon also makes an essential note that in order to satisfy societal needs government has to create strict stimulating mechanisms which would make individual interests lined up with societal ones, though he did not explain the way to do so. His successor Thomas Gobbs mentioned that the amount of income one can earn from his or her corruptive activities should correlate with the potential punishment: “if losses from the misdeed are lower than income from committed crime, such punishment can not be considered to be a real one” (Gobbs, 1964). In other words, Gobbs was insisting that crime should be less profitable than being honest and law obedient – in that case a corrupted official would understand that he or she will loose more if caught (though this idea was not implemented into practice for a while). It is also worth mentioning that this author considered corruption to be a crime comparable to murders and robbery and stays against complete independence of judges because he considers them to be tempted by corruptive initiatives even more than other state representatives (Gobbs, 2001). Spinoza agrees with this idea and states that the way state is governed should not depend on anybody’s honesty or ethics. He states that highest government officials who are responsible just before themselves, are unlikely to prevent themselves from use career. Henceforth the best way of government organization is to put it the way when state does not of their high status, and it does not matter how ethical they were in the beginning of depend on anybody’s honesty, so government officials should be selected out of those whose individual wealth and life quality depend on societal wealth and life quality (Spinoza, 1998). Absolute implementation of such principle is to insure everyone’s equity in face of the law when even people on the top of government pyramid are restricted by their fear of punishment. It is worth mentioning that this thought was expressed in medieval Europe where inequity between people was considered normal. Spinoza’s ideas were progressed by Montesquieu who is considered to be the author of power branches separation concept which is based upon statement that “every person who has the power would over exploit it up to the set limit” (Montesquieu, 1955). In other words, if one does not have any inner limitations they are to be imposed from external environment – and this principle is the most important one in handling corruption. At the same time this author has also explained there is the difference between the way of handling corruption within police and courts, so he takes into consideration that police is handling a lot of unexpected situations so it should rely on people’s judgment as well while judges are to impose law strictly: “presumption of law is better than presumption of man” (Montesquieu, 1955). This statement also means that judge should not be allowed to choose between various types of punishment since this possibility provide perfect conditions for corruption, and this can be seen in comparative analysis of two approaches the results of which prove the point. Those ideas were not implemented in the practice of European government regulation right a way, but the trend on realization of the need to handle corruption is quite clear. This, in turn, led to rise of entrepreneurial activity which occur both in usury and manufacturing. Actually the term “entrepreneur” itself
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was introduced by Cantillon exactly at that time (Cantillon, 1755). The tendency to cut corruption and henceforth stimulate entrepreneurial activity is most strong in the United States (which later became the most entrepreneurial-friendly economy). Ideologist of American revolution Benjamin Franklin wrote that “the perfection of trade is in fact that every single thing has its price”. Henceforth there are very few things that cannot become the subject for commercial relations, and even legislative power itself can be in commercio (Franklin, 1956). He also notices that this happens much faster in capital cities, and suggests his own recipe against corruption; according to Franklin education is the method of corruption handling – a highly educated person is likely to understand the far going results of his or her corrupted behavior. At the same time Franklin understood that not everyone has the ability to get this quality of education, so he stated that behavior of the others has to be regulated. His colleague Thomas Jefferson though had a better opinion on human nature but also understood that people tend to become corrupted when they get the power even if they were honest before: “we know how individual interest affects person’s mind and how his judgments change under this influence”. This led him to the idea that judges are to be controlled by both federal and state authorities (Franklin, 1956). Those ideas found their implementation in basic legislative documents of American democracy and in terms of our survey actually became the basis for creation of one of he least corrupted forms of government which resulted in high entrepreneurial activity throughout development of the said country. In XX century new forms of corruption arose – the main of those was making government officials shareholders of private companies (which is a hidden form of corruption which is now forbidden in most countries). In order to see how this form affects socio-economic development of the state one can take a look on the example of Soviet Union. In the end of 1980-s in this country some forms of private property and entrepreneurial activity were finally allowed, which resulted in fantastic growth rate of entrepreneurial units in USSR. But at the same time Soviet state officials had sensed that this allows them to exploit their position and turn power they’ve had into property by means of “taking part” in different entrepreneurial projects. Actually, this activity was the main reason why Soviet budget and reserve became empty in just 3-4 year which resulted in the breakdown of Soviet empire when it became unable to finance its republics (Gaidar, 2006). To make a conclusion we are to mention that in most cases corruption growth resulted in dramatic decrease of entrepreneurial activity. In cases corruption (especially when it was legal) served as a catalyst for entrepreneurship growth it happens because corrupted officials were relatively honest and fair and in were actually acting as regulative institutions – if we impose that restriction into correlation model (which means we are excluding those cases out of sampling) there is high negative correlation of corruption level and level of entrepreneurial activity in historical perspective. This means that the state interested in entrepreneurial development should handle corruption and at least keep it at a certain low level. 3. Business corruption dimensions Due to the fact it is not possible to investigate corruption and coinciding tendencies of entrepreneurial development within global environment, it seems logical to focus on one country which entrepreneurial environment can be considered corruptive. In this paper we would be referring to the entrepreneurial development tendencies in Russian Federation which can be considered highly corruptive country. According to the latest survey of entrepreneurial climate in Russia, only 10% of entrepreneurs had mentioned that they had never come across such phenomena as corruption (Opora Rossiji, 2010) which means this particular country’s development tendencies are suitable for this paper. The results provided under this subtitle are completely based upon Information for Democracy (INDEM) Report on the Issue of Business Development and Corruption. In this survey the following issues were addressed: (1) business’s dependence on authorities and (2) business’s involvement in corruption. Research of business’s dependence on authorities the following typology was used:
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Table 1. Description of business types in the survey “Dependence on authorities”
Type of business Dependent Conjunct by contracts Conjunct by privilege Independent
Description of the type Business grows mainly because of contracts and resources provided by state authorities and has some privileges from them Business grows mainly because of contracts and resources provided by state authorities Business grows mainly because it is provided with some privileges by state authorities Business does not have any contracts or privileges from the authorities
The survey should, that in a corrupted economy the share of dependent companies is insignificant. The reason for this is that corrupted environment create much higher risks for totally dependent companies than to those which deal with alternative markets. There other interesting finding INDEM fund had come across was that most of the companies claim to be independent that they are not really so. Also in case the country suffers from Dutch disease the share of dependent and conjunct companies in this sector of the economy is much higher than average rate (Figure 1). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% conjunct by contracts
conjunct by privilege energy sector
independent
total
Fig. 1. Business dependence on authorities (by sector of economy).
It was revealed within the survey that trade, consulting and intermediary companies tend to be independent since there are only a few that can be considered conjunct by contracts, while in agricultural sector there is a big share of companies that can be addressed as conjunct by privilege. At the same time the share of more or less dependent companies is the highest in mining and energy sectors (the share conjunct by privilege in those sector is 3 times higher than the average rate while the share of those conjunct by contracts is 2 times higher than average) which make major impact on creating Russian economy GDP. This is the main reason government is trying to keep those companies somewhat dependent – as well be legal and illegal means when the latter include corruption. Regarding all the other sectors they seem more or less average in terms of dependency which means there are both affiliated companies (as well by corruptive relationships) and independent companies and both types have growth potential though they use different strategies.
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It was also found that the share of dependent companies increase as we compare small, medium and big ones: the share of small companies conjunct by contracts is only 9% while in the sector of corporations in Russian environment it comes to 42%. For all of the rest that would mean that it is possible to enter the industry but almost impossible to grow there unless you develop affiliation tie (including those established by means of corruption). This finding is also explaining the phenomena of high rate of independent companies in case of corrupted environment. In this case if an enterprise intends to stay independent its founders have to understand that they would have to stop growing at some extend (after reaching medium size) otherwise the company is almost bound to be affiliated which means it would have to accept specific risks and rise corruption costs. This thesis is implicitly proven by the other finding INDEM Fund had come to – the companies who claim to have over 50% of national market (which were addressed as “monopolies” in the study) are mostly dependent ones (Figure 2). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% conjunct by contracts
conjunct by privilege "monopolies"
independent
total
Fig. 2. Business dependence on authorities (by market share).
This figure illustrates a very interesting finding concerning entrepreneurial development in the corrupted environment – in this case affiliation with authorities lead to the dream of every entrepreneur: it becomes able to become a monopoly. It is also worth mentioning that in this case privileges do have even more impact than government contracts. At the same time INDEM came to a conclusion that being a monopoly would not necessarily lead to business success which can also be explained. In case an entrepreneur is growing using privileges he or she kind of loses sensibility which leads to poor management and costs growth – which of course would include “authorities loyalty” costs provided in the form of corruption which has negative influence on the results of company performance. Distribution of those types of companies in Russian environment can be seen on Figure 3. As it can be seen from the Figure 3 in corruptive environment entrepreneurs tend to be involved in passive corruption, so they see corruption as an opportunity and use it if necessary (and such entrepreneurs constitute 2/3 which is qualified majority. It is also worth mentioning that the distribution of involvement types shown above is not changing significantly in different industries (some increase in corruption involvement over average can be seen in agriculture, energy sector and publishing – in those spheres in case of Russian companies can gain certain privileges which is the explanation on slightly higher corruption involvement rate). This allows us to make a conclusion that business in the corruptive environment can use it as an opportunity but is not intending to do so and is actually looking for an alternative in every case when
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corruption seems a solution.
corruption avoidance 13% forced involvement 8%
active involvement 12%
passive involvement 67%
Fig. 3. Business involvement in corruption (by types of the companies).
An interesting finding in the studied field concerns the size of business (which was estimated by the number of employees) – looking from this perspective a researcher can notice that different types of companies are behaving themselves quite differently in terms of involvement in corruption. Micro (less than 10 employees) and small (from 10 to 100 employees) differs a lot from the other types of enterprises: they demonstrate the highest rate of passive involvement. This can be easily explained by the fact that micro and small businesses tend to drift and not to take any extreme position. Then, medium sized companies tend to be actively corruptive more than other ones since they see this kind of activity as some sort of growth – the rate of actively involved companies in this category is 1,5 times higher than average. It is most interesting that the highest rate of corruption avoidance can be found in big companies, which allows one to make a conclusion that in a corruptive environment a company should grow before it will have a possibility to achieve such luxury as becoming independent from the authorities. Another important finding is that entrepreneurs are the ones whose behavior is affected by their attitude towards corruption while regular citizens are affected mainly by the practice they have from relationship with state representatives. Finally, we need to say that entrepreneurs’ dependence on government in corruptive environment is determined by their corruptive practices: the more business is involved in corruption, the more dependent it becomes. This conclusion seems quite trivial but still an important one for building a company in a corruptive environment: the entrepreneur has to choose his path at the very beginning. He or she could either adopt corruptive practice and become dependent (which does not necessarily mean he would be a successful entrepreneur) or avoid corruption and stay independent – with the same chances to become successful. This is a very important point since the main idea expressed in corruptive environment is that you can not succeed unless you adopt corruptive practices which we had seen is not true. 4. Entrepreneurial intentions in corruptive environment In order to come to deeper understanding of entrepreneurial development in corruptive environment one should investigate start-up intentions of entrepreneurs acting in the studied type of environment. As our analysis shows in those types of environment most of the people do have some entrepreneurial experience at a very young age (our sociological study had shown that at the age of twenty 84% of students already tried themselves as entrepreneurs and only 16% never did so). This fact can be explained by the limited amount of possibilities to become and employee and also to the fact of almost total absence of social lift in corrupted environments.
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Then, those who do have entrepreneurial experience do not see this type of economic activity as a career opportunity – 95.2% say they would do it only in case they would be forced to. The main reason our respondents have stated for such attitude can be defined as high disrespect shown in Russia towards property rights: the students are almost sure that if they would be able to build profitable business they will have to ability to use profit they’ve earned and they would have to give it away to some controlling government structures. This thesis is indirectly proven by the fact that none of the students was even thinking about paying taxes out of the profit they’ve earned. Most of them when asked to explain why they did not think about taxes had stated that government is taking out too much already and henceforth they don’t owe anything out of their profit in terms of taxes. Even students involved in family business confessed their families are trying not to pay any taxes even in case (!) they were granted government support to stimulate business. This result is not affected by the industry which was chosen for the first entrepreneurial experiment (out of those who we interviewed 14.3% were involved in family business, mostly agricultural (those students are living in suburbs of the cities where the University campus is situated with their parents), 31% was involved in production of consumer goods (knitting, making bed linen, bath-house accessories, producing pieces of car tuning), 33.3% offered consumer services (hairdresser and masseur services, translation, teaching math and Russian to school kids and even drawing on request), 9.5% made dishes of national cuisine on request and 11.9% were involved in activities which can be defined as social entrepreneurship). Investigation of other countries in corrupted regions (for instance, in South-East Asia) shows as well that in those countries entrepreneurial activity at the start-up stage is as well concentrated in the areas of trade and production of hand-made goods. There are two main reasons which are considered to explain this tendency. The first one is lack of access to start-up capital (including undeveloped financial system as well – in case of South-East Asian countries, as described, for example, by Yunus&Jolis (Yunus, Jolis, 2008) which leads to the fact that potential entrepreneur has to start a business that does not require a lot of capital apart from sweat one which is usually considered to be free by the entrepreneurs (this phenomena would be investigated later). The second reason behind the choice of the mentioned areas of business activity is that entrepreneurs active in corruptive environment point out that there is a lack of human capital. This fact is due, as the research shows, to the fact that people’s intention is usually to work for the government and therefore have access to earning extra money by means of taking corruptive steps. Henceforth potential employees are far less interested in employment in start up companies. Due to that a starting entrepreneur has to rely upon him/herself and choose an area where minimum employees would be needed (this point will also be discussed later). As it was mentioned above, investigation of entrepreneurial intentions in corruptive environment would not be full without search of attitude towards sweat capital. Here we’ve got another interesting finding: almost all entrepreneurs at the start-up stage show total disrespect to their own work. None of the students who took part in the survey and who had entrepreneurial experience included their own time and skills into the cost of products and services produced – on the opposite, they usually state that they are not actually having any costs besides materials needed, so working for themselves in fact mean making money out of nothing. Sweat capital costs nothing in their opinion and this was proven through a series of interviews with active entrepreneurs in their start-up stage. That partly explains students intention to become hired employees – in that case they would be paid for their job which means it would be appreciated while self-employment somehow means for them lack of appreciation. As far as entrepreneurial study is concerned, this tendency can be found mostly in specific hostile entrepreneurial environments – that means corruptive ones in the first place. Another reason explaining low entrepreneurial activity in comparison to high entrepreneurial intentions achieved from the survey was lack of trust within the corrupted society. 85.7% of students with entrepreneurial experience had carried out their activities by themselves and mention they are unable to work with somebody else since they don’t trust anybody in business activities. Extremely low level of collaboration corresponds with the result of all-Russia poll which proved that
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72% of Russian population is sure that people can not be trusted. Henceforth the entrepreneurs at the start-up stage are convinced they would be able to find trustworthy employees, which means it is impossible to create a big company. This result was also confirmed by some sociological surveys which were performed lately (carried out, for example, by Levada Centre). Those facts also support the conclusion which was already state above: even at the preparation period potential entrepreneurs feel that in order to become independent and actually create something they have to become big at first – and they are not positive on the issue. At the same time existing entrepreneurs mention they have huge problems with hiring qualified employees (Opora Rossiji, 2010) which also leads to growth of lack of trust and henceforth – to entrepreneurial activity decrease, which is also an important factor for corruptive environments in case of growing businesses. Existence of a few tendencies in entrepreneurial intentions and development found out in quoted surveys allows one to figure out some trends of entrepreneurial development in corruptive environments which are presented below. 5. Conclusions In order to summarize all of the above one can make a few statements concerning entrepreneurial development in corruptive environment. 1. Strangely enough entrepreneurial spirits are pretty high in corruptive environment though they do not result in venture creation most of the time, but mainly lead to situation of high rate of informal entrepreneurship. 2. The main reason driving entrepreneurial activity in the corruptive environment is the absence of social lift and in many cases it seems to be the only opportunity to change the way of life which a person should live in case no changes would be implemented. 3. The bigger business grows in the corruptive environment, the more it tends to avoid corruption and become independent. At the point of growing over certain scale entrepreneurs start to consider the possibility of gaining support from foreign co-owners/investors which would allow to decrease corruptive practices. 4. Corruptive practices are not necessarily leading to business success which means that even in corruptive environment entrepreneurs have a choice and need to choose a path by themselves keeping in mind they can become successful in both cases: when they drift in a corruptive environment or avoid it. But in order to avoid corruption an entrepreneur need to build trust and efficient collaboration – at this is the main bottleneck for entrepreneurial development in corruptive environment which tend to reduce trust dramatically. 5. Corruptive environments provide the basement for high entrepreneurial intentions, and the majority of the people working in such environments usually do have some entrepreneurial experience in their youth but only a few choose it as a career path. 6. Successful entrepreneurs in corruptive environments tend to be authoritarian, cunning, communicative in both formal and informal ways. They usually create a business model based upon exploitation of resources (any type). The aim of this model is to achieve profits in a short-term period in order to be able to exit business in 2-3 period of time in case corruptive burden becomes too heavy. 7. 2-3 year period is a normal one for business existence in corruptive environments. After that an entrepreneur either grows over certain scale, has built necessary informal relations to stay in business or has to exit and in many cases start over under a different name. In any case in such an environment an entrepreneur is rarely interested in building a socially responsible business and henceforth is rarely supported by local community. 8. Majority of entrepreneurs developing business in corruptive environment mention that government influence on their business is more hostile than criminal one. Thus, government regulation is considered to be negative or very negative by approximately 35-40% of entrepreneurs while criminal influence is considered the same by maximum 15-20% of entrepreneurs. To make a conclusion one can say that corruptive environment somehow becomes a catalyst for
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entrepreneurial intentions but at the same time it is a reason for creation of low trust culture which prevents most business from growing. Finally, entrepreneurs active in corruptive environments fear government regulation structures more than criminal ones and henceforth are usually not ready to create long-lasting companies. References Akimova N. 2008. Corruption Origins and the Ways of Handling It in Russian Experience of XIV-XVII centuries. History of state and law #8, p. 17. Bagautdinova N.G., Gafurov I.R., Kalenskaya N.V., Novenkova A.Z. 2012. The regional development strategy based on territorial marketing (the case of Russia). World Applied Sciences Journal 18 (Special Issue of Economics), pp. 179-184. Kurakin A. 2002. Administrative and Legal Means of Government Corruption Prevention and Suppression. State and Law #9, p. 39. Cantillon R. Essay on the Nature of Commerce in General. Edited with an English Translation and other material by Henry Higgs, C.B., with an article by W. Stanley Jevons, Jan. 1881. Demidova N. 1987. Servitor Bureaucracy in Russia in XVII Century and Its Role in Absolutism Creation. Moscow. AN USSR Publishing, Gaidar E. 2006. Power and Property. Moscow: INFRA-M. Gobbs T. 2001. Philosophical Statement of Civilian Study. Minsk, ACT. Jefferson T. 1990. Autobiography. Leningrad, Science Publishing. Kuemmerle W., Chad E., Coughlin W.J. 2000. Capital Alliance Private Equity: Creating a Private Equity Leader in Nigeria. Boston, MA: Harvard Business School Publishing. Spinoza B. 1998. Political Treatise. Moscow, Mysl Publishing. Yunus M., Jolis, A. 2008. Vers un Monde sans Pauvrete. JCLattes Bacon F. 1977. Experiments and Instructions: Moral and Political. Moscow, Mysl Publishing. Franklin B. 1955. Notes on Some Observations Concerning Influence of Moral on Civilian Population. Moscow Gospolitizdat Publishing. Gobbs T. 1977. Leviathan, or Matter, Form and Power of Clerical and Civilian State. Moscow, Mysl Publishing. Montesquieu S. 1955.On the Issue of Spirit of Laws. Moscow Gospolitizdat Publishing. INDEM Fund Report on the Issue of Business Development and Corruption. 2011. http://www.anticorr.ru/awbreport/indextxt.asp?filename=rutxt/04.xml#. Retrieved on April 10th. Safiullin L.N., Ismagilova G.N., Safiullin N.Z., Bagautdinova N.G. 2012. The development of welfare theory in conditions of changes in the quality of goods and services.World Applied Sciences Journal 18 (Special Issue of Economics), pp. 144-149.
ScienceDirect Procedia Economics and Finance 5 (2013) 73 – 82
International Conference on Applied Economics (ICOAE) 2013
Entrepreneurial development in a corrupted environment Bagautdinova N.G. a*, Goncharova I.V.b, Shurkina E.Y. c, Sarkin A.V.d, Averyanov B.A.e, Svirina A.A.f a Kazan Federal University, [email protected], Kazan, 420008, Russia, Moscow State Humanities University, [email protected], Moscow, 109240, Russia, c Kazan National Research Technical University, [email protected], Kazan, 420011, Russia d Kazan Federal University, [email protected], Kazan, 420008, Russia e Kazan Federal University, [email protected], Kazan, 420008, Russia f Kazan National Research Technical University, [email protected], Kazan, 420011, Russia b
Abstract The paper deals with essentials of corruptive environment creation and gives the historical background of corruption existence which can help the researcher to come to deeper understanding of its results. After that business corruption dimensions are searched and main trends of different types of the firms’ development in those dimensions are investigated. The paper also reveals the results of survey dedicated to estimation of corruptive environments’ entrepreneurial intentions which allows understanding the main trends of business model creation in this type of hostile external surroundings. Finally typical specific features of entrepreneurial development in corruptive environment are revealed. Those include both individual features of entrepreneurs developing their business in corruptive environment as well as main features of business models they tend to implement in their entrepreneurial practices. © Authors. Published by Elsevier B.V. B.V. ©2013 2013The The Authors. Published by Elsevier Selection peer-review under responsibility of the Organising Committee of ICOAE 2013 Selectionand/or and/or peer-review under responsibility of the Organising Committee of ICOAE 2013.
Key words: qualitative and quantitative analysis both from contemporary and historical perspective dealing with different elements of entrepreneurial development in corrupted environment
1. Introduction Entrepreneurial development is considered to be one of the most important tools for lessening the
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* Corresponding author. +7 (903) 344-8389 E-mail address: [email protected].
2212-5671 © 2013 The Authors. Published by Elsevier B.V. Selection and/or peer-review under responsibility of the Organising Committee of ICOAE 2013 doi:10.1016/S2212-5671(13)00012-9
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impact of global economic crisis due to the fact the creation of new ventures becomes the catalyst for increase of business activity and therefore post-crisis recovery. On the other hand within the periods of stable world economy development entrepreneurial development becomes a necessary element of it as well. This means that governments are interested in entrepreneurial development stimulation and therefore ought to provide efficient policies on the issue. However it is essential to investigate the trend of entrepreneurial development in case external environment is providing difficulties for business development both for start-ups and existing companies. A specific case of hostile external entrepreneurial environment is the situation of business development in corrupted environment which usually means high extra burden on business structures and entrepreneurs of both formal and informal character. Some research on the issue had been done within case studies (see for example Kuemmerle, Ellis and Coughlin, 2000). At the same time in order to have a clear picture of different issues of entrepreneurial development one needs to research specific features and entrepreneurial activity trends in corrupted and therefore hostile external environment which is the issue of this paper. 2. Entrepreneurial activity and corruption: historical perspective. One of the major factors which lead to country’s economic growth is the level of institution development which depends on efficiency and quality of government regulation. Analysis of entrepreneurial development practice shows that entrepreneurs usually appear when the quality of state regulation is equal to authorities it has. This last issue is quite essential for entrepreneurs since in case government is overexploiting its power entrepreneurs are usually moving out of the country – and this is perfectly true for the states with high corruption level (which is usually the consequence of over exercising of state power). In this case corruption can be considered special non-transparent tax imposed on business. The problem of handling corruption is not a new one. Exploring historical perspective one can notice there is enough experience on this issue and reveal certain correlations between the level of corruption and entrepreneurial activity of those periods. Before we start the said investigations we are to mention that high level of corruption does not necessarily mean there will be low entrepreneurial activity; to certain extend corruption can even be a catalyst for entrepreneurial development processes – before it exceeds certain level. First of all it seems logical to mention the history of studied issue. Corruption as a crime existed already in ancient world – the punishment which can occur if corruption is revealed are mentioned in two oldest sets of laws: Hammurapi Codex (Babylon, 2200 BC) and Narmaba Edict (Egypt, 1200 BC). Plato and Aristotle in Ancient Greece paid a lot of attention to negative influence corruption has on economic, political and spiritual life of the society (Akimova, 2008). Some researches even mention that corruption was one of the main reasons for Roman Empire downfall (Kurakin, 2002). Historical analysis of corruption as an institution shows that it had always been a dynamic institution which became legal every once in a while. An example of legalized corruption is Byzantine institute of socalled “feeding”: the situation when local state representatives of the Emperor where appointed were appointed but did not receive any salary and were supposed to be “fed” by local inhabitants. Later this practice was prohibited and “feeding” transformed into illegal payments to which law enforcement institutions did not really pay any attention (Demidova, 1987). At the times of “feeding” entrepreneurial activity in Byzantine Empire was highly polarized depending mainly on the pressure of “feeding” burden and related quality of state regulation. As we’ve mentioned above, in some cases corrupted officials were interested in the rise of entrepreneurial activity and in that case were quite efficient in stimulating it. It is also worth mentioning that even when state representatives became paid government officials their salary was a few times lower than “gifts” they where getting for helping visitors out with their problems (Kurakin, 2002). An interesting situation can be found in medieval Russia (which is a highly corrupted country till today with deep historical roots of the issue). In this country decrease of budget income resulted in fact that some of state representatives (low level ones mainly) where left without salary though stayed government officials and
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this practice became quite widespread. Thus, in 20s of XVII century only one official of a hundred was paid that way, while 50 years later every 4th government official was unpaid. This situation again resulted in allowing such state employees to receive “income” for performing their government duties which in fact meant corruption legalization (Kurakin, 2002). Entrepreneurial activity in the country at the time is decreasing due both to higher legal and illegal taxes imposed on business which any way was not wide spread at the time in feudal Russia. At this time Europe comes to the New Age and rise of bourgeoisie. At this point of European development the problem of over exploitation of government power became a highly actual one (which was of course due to total commercialization of lifestyle). It is fascinating that though corruption is considered by the authors of New Age to have negative influence on societal and economic development, they did agree that government officials should become corrupted due to the fact a person should be an egoist. For example, Francis Bacon was considering the desire to exploit official’s position a normal one: “There is no one who tends to do evil in the name of evil…people do it to get some income, pleasure or achieve certain status etc. So should I be surprised that a person loves himself more than me?” (Bacon, 1977). Bacon also makes an essential note that in order to satisfy societal needs government has to create strict stimulating mechanisms which would make individual interests lined up with societal ones, though he did not explain the way to do so. His successor Thomas Gobbs mentioned that the amount of income one can earn from his or her corruptive activities should correlate with the potential punishment: “if losses from the misdeed are lower than income from committed crime, such punishment can not be considered to be a real one” (Gobbs, 1964). In other words, Gobbs was insisting that crime should be less profitable than being honest and law obedient – in that case a corrupted official would understand that he or she will loose more if caught (though this idea was not implemented into practice for a while). It is also worth mentioning that this author considered corruption to be a crime comparable to murders and robbery and stays against complete independence of judges because he considers them to be tempted by corruptive initiatives even more than other state representatives (Gobbs, 2001). Spinoza agrees with this idea and states that the way state is governed should not depend on anybody’s honesty or ethics. He states that highest government officials who are responsible just before themselves, are unlikely to prevent themselves from use career. Henceforth the best way of government organization is to put it the way when state does not of their high status, and it does not matter how ethical they were in the beginning of depend on anybody’s honesty, so government officials should be selected out of those whose individual wealth and life quality depend on societal wealth and life quality (Spinoza, 1998). Absolute implementation of such principle is to insure everyone’s equity in face of the law when even people on the top of government pyramid are restricted by their fear of punishment. It is worth mentioning that this thought was expressed in medieval Europe where inequity between people was considered normal. Spinoza’s ideas were progressed by Montesquieu who is considered to be the author of power branches separation concept which is based upon statement that “every person who has the power would over exploit it up to the set limit” (Montesquieu, 1955). In other words, if one does not have any inner limitations they are to be imposed from external environment – and this principle is the most important one in handling corruption. At the same time this author has also explained there is the difference between the way of handling corruption within police and courts, so he takes into consideration that police is handling a lot of unexpected situations so it should rely on people’s judgment as well while judges are to impose law strictly: “presumption of law is better than presumption of man” (Montesquieu, 1955). This statement also means that judge should not be allowed to choose between various types of punishment since this possibility provide perfect conditions for corruption, and this can be seen in comparative analysis of two approaches the results of which prove the point. Those ideas were not implemented in the practice of European government regulation right a way, but the trend on realization of the need to handle corruption is quite clear. This, in turn, led to rise of entrepreneurial activity which occur both in usury and manufacturing. Actually the term “entrepreneur” itself
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was introduced by Cantillon exactly at that time (Cantillon, 1755). The tendency to cut corruption and henceforth stimulate entrepreneurial activity is most strong in the United States (which later became the most entrepreneurial-friendly economy). Ideologist of American revolution Benjamin Franklin wrote that “the perfection of trade is in fact that every single thing has its price”. Henceforth there are very few things that cannot become the subject for commercial relations, and even legislative power itself can be in commercio (Franklin, 1956). He also notices that this happens much faster in capital cities, and suggests his own recipe against corruption; according to Franklin education is the method of corruption handling – a highly educated person is likely to understand the far going results of his or her corrupted behavior. At the same time Franklin understood that not everyone has the ability to get this quality of education, so he stated that behavior of the others has to be regulated. His colleague Thomas Jefferson though had a better opinion on human nature but also understood that people tend to become corrupted when they get the power even if they were honest before: “we know how individual interest affects person’s mind and how his judgments change under this influence”. This led him to the idea that judges are to be controlled by both federal and state authorities (Franklin, 1956). Those ideas found their implementation in basic legislative documents of American democracy and in terms of our survey actually became the basis for creation of one of he least corrupted forms of government which resulted in high entrepreneurial activity throughout development of the said country. In XX century new forms of corruption arose – the main of those was making government officials shareholders of private companies (which is a hidden form of corruption which is now forbidden in most countries). In order to see how this form affects socio-economic development of the state one can take a look on the example of Soviet Union. In the end of 1980-s in this country some forms of private property and entrepreneurial activity were finally allowed, which resulted in fantastic growth rate of entrepreneurial units in USSR. But at the same time Soviet state officials had sensed that this allows them to exploit their position and turn power they’ve had into property by means of “taking part” in different entrepreneurial projects. Actually, this activity was the main reason why Soviet budget and reserve became empty in just 3-4 year which resulted in the breakdown of Soviet empire when it became unable to finance its republics (Gaidar, 2006). To make a conclusion we are to mention that in most cases corruption growth resulted in dramatic decrease of entrepreneurial activity. In cases corruption (especially when it was legal) served as a catalyst for entrepreneurship growth it happens because corrupted officials were relatively honest and fair and in were actually acting as regulative institutions – if we impose that restriction into correlation model (which means we are excluding those cases out of sampling) there is high negative correlation of corruption level and level of entrepreneurial activity in historical perspective. This means that the state interested in entrepreneurial development should handle corruption and at least keep it at a certain low level. 3. Business corruption dimensions Due to the fact it is not possible to investigate corruption and coinciding tendencies of entrepreneurial development within global environment, it seems logical to focus on one country which entrepreneurial environment can be considered corruptive. In this paper we would be referring to the entrepreneurial development tendencies in Russian Federation which can be considered highly corruptive country. According to the latest survey of entrepreneurial climate in Russia, only 10% of entrepreneurs had mentioned that they had never come across such phenomena as corruption (Opora Rossiji, 2010) which means this particular country’s development tendencies are suitable for this paper. The results provided under this subtitle are completely based upon Information for Democracy (INDEM) Report on the Issue of Business Development and Corruption. In this survey the following issues were addressed: (1) business’s dependence on authorities and (2) business’s involvement in corruption. Research of business’s dependence on authorities the following typology was used:
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Table 1. Description of business types in the survey “Dependence on authorities”
Type of business Dependent Conjunct by contracts Conjunct by privilege Independent
Description of the type Business grows mainly because of contracts and resources provided by state authorities and has some privileges from them Business grows mainly because of contracts and resources provided by state authorities Business grows mainly because it is provided with some privileges by state authorities Business does not have any contracts or privileges from the authorities
The survey should, that in a corrupted economy the share of dependent companies is insignificant. The reason for this is that corrupted environment create much higher risks for totally dependent companies than to those which deal with alternative markets. There other interesting finding INDEM fund had come across was that most of the companies claim to be independent that they are not really so. Also in case the country suffers from Dutch disease the share of dependent and conjunct companies in this sector of the economy is much higher than average rate (Figure 1). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% conjunct by contracts
conjunct by privilege energy sector
independent
total
Fig. 1. Business dependence on authorities (by sector of economy).
It was revealed within the survey that trade, consulting and intermediary companies tend to be independent since there are only a few that can be considered conjunct by contracts, while in agricultural sector there is a big share of companies that can be addressed as conjunct by privilege. At the same time the share of more or less dependent companies is the highest in mining and energy sectors (the share conjunct by privilege in those sector is 3 times higher than the average rate while the share of those conjunct by contracts is 2 times higher than average) which make major impact on creating Russian economy GDP. This is the main reason government is trying to keep those companies somewhat dependent – as well be legal and illegal means when the latter include corruption. Regarding all the other sectors they seem more or less average in terms of dependency which means there are both affiliated companies (as well by corruptive relationships) and independent companies and both types have growth potential though they use different strategies.
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It was also found that the share of dependent companies increase as we compare small, medium and big ones: the share of small companies conjunct by contracts is only 9% while in the sector of corporations in Russian environment it comes to 42%. For all of the rest that would mean that it is possible to enter the industry but almost impossible to grow there unless you develop affiliation tie (including those established by means of corruption). This finding is also explaining the phenomena of high rate of independent companies in case of corrupted environment. In this case if an enterprise intends to stay independent its founders have to understand that they would have to stop growing at some extend (after reaching medium size) otherwise the company is almost bound to be affiliated which means it would have to accept specific risks and rise corruption costs. This thesis is implicitly proven by the other finding INDEM Fund had come to – the companies who claim to have over 50% of national market (which were addressed as “monopolies” in the study) are mostly dependent ones (Figure 2). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% conjunct by contracts
conjunct by privilege "monopolies"
independent
total
Fig. 2. Business dependence on authorities (by market share).
This figure illustrates a very interesting finding concerning entrepreneurial development in the corrupted environment – in this case affiliation with authorities lead to the dream of every entrepreneur: it becomes able to become a monopoly. It is also worth mentioning that in this case privileges do have even more impact than government contracts. At the same time INDEM came to a conclusion that being a monopoly would not necessarily lead to business success which can also be explained. In case an entrepreneur is growing using privileges he or she kind of loses sensibility which leads to poor management and costs growth – which of course would include “authorities loyalty” costs provided in the form of corruption which has negative influence on the results of company performance. Distribution of those types of companies in Russian environment can be seen on Figure 3. As it can be seen from the Figure 3 in corruptive environment entrepreneurs tend to be involved in passive corruption, so they see corruption as an opportunity and use it if necessary (and such entrepreneurs constitute 2/3 which is qualified majority. It is also worth mentioning that the distribution of involvement types shown above is not changing significantly in different industries (some increase in corruption involvement over average can be seen in agriculture, energy sector and publishing – in those spheres in case of Russian companies can gain certain privileges which is the explanation on slightly higher corruption involvement rate). This allows us to make a conclusion that business in the corruptive environment can use it as an opportunity but is not intending to do so and is actually looking for an alternative in every case when
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corruption seems a solution.
corruption avoidance 13% forced involvement 8%
active involvement 12%
passive involvement 67%
Fig. 3. Business involvement in corruption (by types of the companies).
An interesting finding in the studied field concerns the size of business (which was estimated by the number of employees) – looking from this perspective a researcher can notice that different types of companies are behaving themselves quite differently in terms of involvement in corruption. Micro (less than 10 employees) and small (from 10 to 100 employees) differs a lot from the other types of enterprises: they demonstrate the highest rate of passive involvement. This can be easily explained by the fact that micro and small businesses tend to drift and not to take any extreme position. Then, medium sized companies tend to be actively corruptive more than other ones since they see this kind of activity as some sort of growth – the rate of actively involved companies in this category is 1,5 times higher than average. It is most interesting that the highest rate of corruption avoidance can be found in big companies, which allows one to make a conclusion that in a corruptive environment a company should grow before it will have a possibility to achieve such luxury as becoming independent from the authorities. Another important finding is that entrepreneurs are the ones whose behavior is affected by their attitude towards corruption while regular citizens are affected mainly by the practice they have from relationship with state representatives. Finally, we need to say that entrepreneurs’ dependence on government in corruptive environment is determined by their corruptive practices: the more business is involved in corruption, the more dependent it becomes. This conclusion seems quite trivial but still an important one for building a company in a corruptive environment: the entrepreneur has to choose his path at the very beginning. He or she could either adopt corruptive practice and become dependent (which does not necessarily mean he would be a successful entrepreneur) or avoid corruption and stay independent – with the same chances to become successful. This is a very important point since the main idea expressed in corruptive environment is that you can not succeed unless you adopt corruptive practices which we had seen is not true. 4. Entrepreneurial intentions in corruptive environment In order to come to deeper understanding of entrepreneurial development in corruptive environment one should investigate start-up intentions of entrepreneurs acting in the studied type of environment. As our analysis shows in those types of environment most of the people do have some entrepreneurial experience at a very young age (our sociological study had shown that at the age of twenty 84% of students already tried themselves as entrepreneurs and only 16% never did so). This fact can be explained by the limited amount of possibilities to become and employee and also to the fact of almost total absence of social lift in corrupted environments.
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Then, those who do have entrepreneurial experience do not see this type of economic activity as a career opportunity – 95.2% say they would do it only in case they would be forced to. The main reason our respondents have stated for such attitude can be defined as high disrespect shown in Russia towards property rights: the students are almost sure that if they would be able to build profitable business they will have to ability to use profit they’ve earned and they would have to give it away to some controlling government structures. This thesis is indirectly proven by the fact that none of the students was even thinking about paying taxes out of the profit they’ve earned. Most of them when asked to explain why they did not think about taxes had stated that government is taking out too much already and henceforth they don’t owe anything out of their profit in terms of taxes. Even students involved in family business confessed their families are trying not to pay any taxes even in case (!) they were granted government support to stimulate business. This result is not affected by the industry which was chosen for the first entrepreneurial experiment (out of those who we interviewed 14.3% were involved in family business, mostly agricultural (those students are living in suburbs of the cities where the University campus is situated with their parents), 31% was involved in production of consumer goods (knitting, making bed linen, bath-house accessories, producing pieces of car tuning), 33.3% offered consumer services (hairdresser and masseur services, translation, teaching math and Russian to school kids and even drawing on request), 9.5% made dishes of national cuisine on request and 11.9% were involved in activities which can be defined as social entrepreneurship). Investigation of other countries in corrupted regions (for instance, in South-East Asia) shows as well that in those countries entrepreneurial activity at the start-up stage is as well concentrated in the areas of trade and production of hand-made goods. There are two main reasons which are considered to explain this tendency. The first one is lack of access to start-up capital (including undeveloped financial system as well – in case of South-East Asian countries, as described, for example, by Yunus&Jolis (Yunus, Jolis, 2008) which leads to the fact that potential entrepreneur has to start a business that does not require a lot of capital apart from sweat one which is usually considered to be free by the entrepreneurs (this phenomena would be investigated later). The second reason behind the choice of the mentioned areas of business activity is that entrepreneurs active in corruptive environment point out that there is a lack of human capital. This fact is due, as the research shows, to the fact that people’s intention is usually to work for the government and therefore have access to earning extra money by means of taking corruptive steps. Henceforth potential employees are far less interested in employment in start up companies. Due to that a starting entrepreneur has to rely upon him/herself and choose an area where minimum employees would be needed (this point will also be discussed later). As it was mentioned above, investigation of entrepreneurial intentions in corruptive environment would not be full without search of attitude towards sweat capital. Here we’ve got another interesting finding: almost all entrepreneurs at the start-up stage show total disrespect to their own work. None of the students who took part in the survey and who had entrepreneurial experience included their own time and skills into the cost of products and services produced – on the opposite, they usually state that they are not actually having any costs besides materials needed, so working for themselves in fact mean making money out of nothing. Sweat capital costs nothing in their opinion and this was proven through a series of interviews with active entrepreneurs in their start-up stage. That partly explains students intention to become hired employees – in that case they would be paid for their job which means it would be appreciated while self-employment somehow means for them lack of appreciation. As far as entrepreneurial study is concerned, this tendency can be found mostly in specific hostile entrepreneurial environments – that means corruptive ones in the first place. Another reason explaining low entrepreneurial activity in comparison to high entrepreneurial intentions achieved from the survey was lack of trust within the corrupted society. 85.7% of students with entrepreneurial experience had carried out their activities by themselves and mention they are unable to work with somebody else since they don’t trust anybody in business activities. Extremely low level of collaboration corresponds with the result of all-Russia poll which proved that
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72% of Russian population is sure that people can not be trusted. Henceforth the entrepreneurs at the start-up stage are convinced they would be able to find trustworthy employees, which means it is impossible to create a big company. This result was also confirmed by some sociological surveys which were performed lately (carried out, for example, by Levada Centre). Those facts also support the conclusion which was already state above: even at the preparation period potential entrepreneurs feel that in order to become independent and actually create something they have to become big at first – and they are not positive on the issue. At the same time existing entrepreneurs mention they have huge problems with hiring qualified employees (Opora Rossiji, 2010) which also leads to growth of lack of trust and henceforth – to entrepreneurial activity decrease, which is also an important factor for corruptive environments in case of growing businesses. Existence of a few tendencies in entrepreneurial intentions and development found out in quoted surveys allows one to figure out some trends of entrepreneurial development in corruptive environments which are presented below. 5. Conclusions In order to summarize all of the above one can make a few statements concerning entrepreneurial development in corruptive environment. 1. Strangely enough entrepreneurial spirits are pretty high in corruptive environment though they do not result in venture creation most of the time, but mainly lead to situation of high rate of informal entrepreneurship. 2. The main reason driving entrepreneurial activity in the corruptive environment is the absence of social lift and in many cases it seems to be the only opportunity to change the way of life which a person should live in case no changes would be implemented. 3. The bigger business grows in the corruptive environment, the more it tends to avoid corruption and become independent. At the point of growing over certain scale entrepreneurs start to consider the possibility of gaining support from foreign co-owners/investors which would allow to decrease corruptive practices. 4. Corruptive practices are not necessarily leading to business success which means that even in corruptive environment entrepreneurs have a choice and need to choose a path by themselves keeping in mind they can become successful in both cases: when they drift in a corruptive environment or avoid it. But in order to avoid corruption an entrepreneur need to build trust and efficient collaboration – at this is the main bottleneck for entrepreneurial development in corruptive environment which tend to reduce trust dramatically. 5. Corruptive environments provide the basement for high entrepreneurial intentions, and the majority of the people working in such environments usually do have some entrepreneurial experience in their youth but only a few choose it as a career path. 6. Successful entrepreneurs in corruptive environments tend to be authoritarian, cunning, communicative in both formal and informal ways. They usually create a business model based upon exploitation of resources (any type). The aim of this model is to achieve profits in a short-term period in order to be able to exit business in 2-3 period of time in case corruptive burden becomes too heavy. 7. 2-3 year period is a normal one for business existence in corruptive environments. After that an entrepreneur either grows over certain scale, has built necessary informal relations to stay in business or has to exit and in many cases start over under a different name. In any case in such an environment an entrepreneur is rarely interested in building a socially responsible business and henceforth is rarely supported by local community. 8. Majority of entrepreneurs developing business in corruptive environment mention that government influence on their business is more hostile than criminal one. Thus, government regulation is considered to be negative or very negative by approximately 35-40% of entrepreneurs while criminal influence is considered the same by maximum 15-20% of entrepreneurs. To make a conclusion one can say that corruptive environment somehow becomes a catalyst for
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entrepreneurial intentions but at the same time it is a reason for creation of low trust culture which prevents most business from growing. Finally, entrepreneurs active in corruptive environments fear government regulation structures more than criminal ones and henceforth are usually not ready to create long-lasting companies. References Akimova N. 2008. Corruption Origins and the Ways of Handling It in Russian Experience of XIV-XVII centuries. History of state and law #8, p. 17. Bagautdinova N.G., Gafurov I.R., Kalenskaya N.V., Novenkova A.Z. 2012. The regional development strategy based on territorial marketing (the case of Russia). World Applied Sciences Journal 18 (Special Issue of Economics), pp. 179-184. Kurakin A. 2002. Administrative and Legal Means of Government Corruption Prevention and Suppression. State and Law #9, p. 39. Cantillon R. Essay on the Nature of Commerce in General. Edited with an English Translation and other material by Henry Higgs, C.B., with an article by W. Stanley Jevons, Jan. 1881. Demidova N. 1987. Servitor Bureaucracy in Russia in XVII Century and Its Role in Absolutism Creation. Moscow. AN USSR Publishing, Gaidar E. 2006. Power and Property. Moscow: INFRA-M. Gobbs T. 2001. Philosophical Statement of Civilian Study. Minsk, ACT. Jefferson T. 1990. Autobiography. Leningrad, Science Publishing. Kuemmerle W., Chad E., Coughlin W.J. 2000. Capital Alliance Private Equity: Creating a Private Equity Leader in Nigeria. Boston, MA: Harvard Business School Publishing. Spinoza B. 1998. Political Treatise. Moscow, Mysl Publishing. Yunus M., Jolis, A. 2008. Vers un Monde sans Pauvrete. JCLattes Bacon F. 1977. Experiments and Instructions: Moral and Political. Moscow, Mysl Publishing. Franklin B. 1955. Notes on Some Observations Concerning Influence of Moral on Civilian Population. Moscow Gospolitizdat Publishing. Gobbs T. 1977. Leviathan, or Matter, Form and Power of Clerical and Civilian State. Moscow, Mysl Publishing. Montesquieu S. 1955.On the Issue of Spirit of Laws. Moscow Gospolitizdat Publishing. INDEM Fund Report on the Issue of Business Development and Corruption. 2011. http://www.anticorr.ru/awbreport/indextxt.asp?filename=rutxt/04.xml#. Retrieved on April 10th. Safiullin L.N., Ismagilova G.N., Safiullin N.Z., Bagautdinova N.G. 2012. The development of welfare theory in conditions of changes in the quality of goods and services.World Applied Sciences Journal 18 (Special Issue of Economics), pp. 144-149.